Collusion through Coordination of Announcements

Joseph E. Harrington and Lixin Ye

Journal of Industrial Economics, 2019, vol. 67, issue 2, 209-241

Abstract: A theory is developed to explain how sellers can effectively collude by coordinating on list prices (or surcharges), while leaving sellers to set their final prices. List prices are interpreted to be cheap talk announcements about cost information unknown to buyers. Buyers use those announcements to decide whom to invite to their procurement auction and the reserve price to set. By coordinating on a high list price to signal high cost, sellers produce supracompetitive prices by inducing buyers to be less aggressive, as reflected in a higher reserve price. We show that collusion can raise social welfare.

Date: 2019
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